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Predicting currency fluctuations and crises - do resident firms have an informational advantage?, Volume 1
Author:Kaufmann, Daniel; Mehrez, Gil; Schmukler, Sergio; Country:Malaysia; Thailand; Indonesia; Russian Federation; Korea, Republic of;
Date Stored:2000/01/15Document Date:1999/12/31
Document Type:Policy Research Working PaperSubTopics:Payment Systems & Infrastructure; Public Health Promotion; Economic Theory & Research; Financial Intermediation; Environmental Economics & Policies; Health Monitoring & Evaluation; ICT Policy and Strategies
Language:EnglishMajor Sector:Financial Sector
Region:Europe and Central Asia; East Asia and PacificReport Number:WPS2259
Sub Sectors:Other FinanceCollection Title:Policy, Research working paper ; no. WPS 2259
Volume No:1  

Summary: The authors investigate whether resident enterprise managers have an informational advantage about the countries in which they work. They propose a method for extracting information available to resident managers but unknown to investors and forecasters. They rest their hypothesis of informational advantage using a unique data set, the Global Competitiveness Survey. The survey asks local managers about their outlook for the country in which they reside. They find that local managers do have useful private information. Local managers' responses improve on conventional forecasts of future volatility and changes in the exchange rate, which are based on economic fundamentals or interest rate differentials. They find that the local business community perceived in advance the recent crises in the Republic of Korea, Russia, and Thailand, but not those in Indonesia and Malaysia. Markets have had limited success predicting crises and might do better by drawing on private information available to resident enterprise managers, who seem to know better than markets about future movements in exchange rates.

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